Definition Of Lifting The Corporate Veil

In John Rawls' A Theory of Justice, he argues that morally, society should be constructed politically as if we were all behind a veil of ignorance; that is, the rules and precepts of society should be constructed as if we had no prior knowledge of our future wealth, talents, and social status, and could be placed in any other person's societal position (Velasquez, 2008). Through this, Rawls believes that people will create a system of “justice as fairness” because their lack of knowledge regarding who they are will prevent them from arranging a society that would benefit those in their position at the expense of others.

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

This paper describes the impact of the decision made in the case of Tesco Stores Ltd v Brent LBC on the law and its effects on the corporate world, and the comparison between the doctrine of vicarious liability that it outlines and the doctrine of identification that was used earlier to determine the liability of corporations in cooperate crime.

Woodward, S., Bird, H. & Sievers, S. (2005). Corporations Law in Principle 7th ed. Pyrmont, NSW: Lawbook Co.

The legal decision to treat the rights or duties of a corporation as the rights or liabilities of its directors is called piercing the corporate veil or lifting the corporate veil. A corporation is treated as a separate legal person for the sole responsible of debts incurred. Corporations are

To summarize how the theme of truth works in this particular chapter is by eventually seeing the world for its trueself. It’s easy to pretend the world is all good and that nothing can go wrong, but some moments can make us see that it’s bad just as it is good. The “wind” that allows us to see this could be something small as in getting a ticket for speeding, we don’t like it, but it happens and we can still go throughout the day with the veil remaining fully upon our faces. To lift the veil ourselves is to learn the truth in a drastic, but eye-opening way. It’s growing up and realizing bad things do happen to good people, but we can not let that stop us from living our life fully, but use it as a lesson to step back and think what we can do

The first and arguably most important point is that restrictions placed on parties’ knowledge behind the veil of ignorance do not help us to come to sound conclusions about social justice. The veil of ignorance creates epistemic constraints for the parties. They do not know any facts about themselves such as race, age, gender, psychological predispositions, or their social standing. They also do not know their conceptions of the good - views about what they find valuable or important to lead a good life (Rawls 1999: 118). They do, however, have access to social, economic, and scientific theories to help create principles of justice. It can be claimed that parties are deprived of excessive knowledge, so much so they are psychologically unable

As a general rule of thumb, shareholders of US corporations are not personally liable for the debts, taxes, obligations or actions of the corporation in which they are a member. This shield from personally liability is known as the corporate veil. The corporate veil, a cornerstone of American corporate law, derives from the fact that corporations in America are regarded as legal personalities, distinct and separate from their shareholders; a concept that gives a little context to the now infamous “Corporations are people!” “blunder” by former presidential candidate Mitt Romney during the 2012 election cycle. The corporate veil also protects parent companies from the debts, taxes, and obligations of subsidiaries. This protection is hailed by many scholars in the area of corporate law because it is believed to be an encouraging factor in the formation new business, which helps to develop and maintain a healthy economy. While it is true and widely accepted that under certain circumstances corporate entities should be regarded as separate and distinct from their individual shareholders, it is also true and accepted that sometimes this concept of separate and distinct should be disregarded by the courts in the interest of preventing fraud or injustice to third parties.

There are exceptions to the principle in Salomon’s case, where the veil is lifted, or pierced, and the law disregards the corporate entity and pays regard instead to the economic realities behind the disguise. Exceptions can be classified into those expressly provided by statute (such as in section 214 of the Insolvency Act 1986 which makes directors liable for wrongful trading10) and those under judicial interpretation11. To ‘lift the veil of incorporation’ simply means to ignore or set aside the separate legal personality of a company.

This is not an easy burden to meet. In determining whether or not a third party has met this burden, a court will consider several factors, including: the absence of business records, undercapitalization of the business, failure to observe mandatory formalities, fraudulent representation by shareholders and/or directors, the promotion of fraud or illegal activity, payment of personal obligations by the corporation, commingling of assets, conduct that manipulated or ignored the corporate form, or is otherwise found to be an “alter ego” of the corporate mangers or shareholders. It is not necessary that the third party make a showing of the existence of all those factors in order to support a finding that the corporate veil should be pierced. Once pierced, or lifted, courts can look beyond the independent personality of a corporation and hold individual shareholders, board members, or employees liable for the obligations of the corporation. In deciding whether the burden has been met, courts will weigh two competing interests. The first being fairness, or the desire to reach an equitable outcome, and the second being societies interests in upholding the principle of limited liability.

Ian M Ramsay Harold Ford Professor of Commercial Law and Director, Centre for Corporate Law and Securities Regulation The University of Melbourne David B Noakes Solicitor, Allen Allen & Hemsley, Sydney, and Research Associate, Centre for Corporate Law and Securities Regulation The University of Melbourne There is a significant amount of literature by commentators discussing the doctrine of piercing the corporate veil. However, there has not been a comprehensive empirical study of the Australian cases relating to this doctrine. In this article, the authors present the results of the first such study. Some of the findings are (i) there has been a substantial increase in the number of piercing cases

When one is operating a large corporation, things can go wrong. Many times even large business can fall into bankruptcies or have other legal suits thrown against them. Sometimes a business must also take risks that don’t always turnout in their favor. One would never want a failed business endeavor to hinder them and possibly their family. This is why, it is always nice to have a policy in place that can protect you from the liability of business debts and other obligations that can arise from operating the corporation. This protection is known throughout the business as the corporate veil. The corporate veil exists, mainly to protect the owners of a corporation from unfortunate circumstances. However, there are those who try to take advantage

The protections under the Corporations Act suffice to guard the minority from the majority’s unfair wrongdoing. In fact, the Australian corporate law provides significant protections on shareholders. To support the argument, this essay discusses Foss v Harbottle rule and derivative action. It also elaborates exceptions to the rule, especially ‘fraud on the minority’ and statutory protections available for the minority protection under the Corporations Act. These are analysed in views of organic theory, economic theory and aggregate theory. It concludes with that specific protections for the minority are unnecessary because these may lose the balance of a corporation and the minority and majority members.

Human beings are commonly legal person but humanity is a state of nature which may be or not be deliberated. In the eighteenth century business relations were considered to be contracted between “real” persons, whereas after that time legal relationships had been extended to relations between companies, considered as separate legal personality. In company law it has been held that a company is considered as a separate legal entity holding its own assets, debts and equities. Prior to 1840s a company had to be incorporated from Royal Charter or by the Parliament. However, during that time British Empire was facing high high competition from other European countries. While the vast majority of British companies were in the hand of family enterprises America was growing companies such as J.P Morgan. While Britain had the ability to compete, the bureaucracies forming a firm was crushing the national economic development. Salomon vs Salomon & Co became an important part and a decisive revolution of company law since 1897. This principle determines that a company’s assets belongs to it and not to its directors or other parties involved and is responsible for its own debts and liabilities. Thus, shareholders and directors are not liable for paying back creditors in event of liquidation. The separate legal personality of a company signifies one of the most vital principles of company law which was first established by the House of Lords in Salomon case. This case defines the legal

This doctrine has been seen as a “two- edged sword,” reason being that at a general level while it was seen as a good decision in that by establishing that corporations are separate legal entities, Salomon 's case endowed the company with the entire requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon 's case has promoted fraud and the evasion of legal obligations.